Compute the cost for the following sources of financing: a. A $ 1,000 par value bond with

Question:

Compute the cost for the following sources of financing:
a. A $ 1,000 bond with a market price of $ 970 and a interest rate of 10 percent. Flotation costs for a new issue would be approximately 5 percent. The bonds mature in 10 years and the corporate tax rate is 34 percent.
b. A preferred stock selling for $ 100 with an annual payment of $ 8. The flotation cost will be $ 9 per share. The company’s marginal tax rate is 30 percent.
c. Retained earnings totaling $ 4.8 million. The price of the is $ 75 per share, and per share was $ 9.80 last year. The is not expected to change in the future.
d. New when the most recent was $ 2.80. The company’s dividends per share should continue to increase at an 8 percent growth rate into the indefinite future. The market price of the stock is currently $ 53; however, flotation costs of $ 6 per share are expected if the new stock is issued.
Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their... Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...